Why Rooftop Solar Is The Best Choice For The UK Economy Right Now — Even With The British Weather!
By Michal Bacia
In April of this year, the British Government, through its Department of Energy & Climate Change, announced “…plans to turn the Government estate as well as factories, supermarkets and car parks into solar hubs.” This is huge! Translation? Government support for solar PV distributed generation (DG). Yay!
The UK solar industry (at least some companies) do not share my excitement about this shift in government strategy. They are worried about decreasing support for large-scale solar farms, which is completely understandable when they have a pipeline of utility-scale projects already lined up. An announcement of lower support for solar farms means they have to hurry up and build them ASAP. Without enough qualified manpower, building all these planned projects before March 31st, 2015 will be difficult.
For the general public, a green light for DG solar is great news. Here is why:
Renewable energy (RE) was an environmental thing at first. The EU pushed RE obligations because it was concerned about CO2 emissions, the climate, and polar bears. When you talk about the environment or future generations you can’t really put a price tag on it. It’s a political issue, not a business one. Germany and Denmark, for example, said OK, we want clean air and low CO2 emissions and we are willing to pay for it with high electricity prices. Others, who were not so interested in the environment, said NO WAY, RE is too expensive, high energy prices will kill our economy, we will lose jobs, etc. For them, RE was a luxury they couldn’t afford.
In reality, the question of how RE influences economy is more complicated. It’s far more than just a question of how much energy costs. It’s a question of where does that money go.
In the ’90s, the UK was an energy exporter. Thanks to natural gas and oil resources, the country was able to cover all its energy needs with domestic resources. They were even exporting surplus. In the mid 2000s, however, the situation changed completely. Production from the North Sea dropped and the country had to start importing energy. According to the US Energy Information Administration (EIA), in 2011 alone, the UK imported 388 thousand (388,000) barrels of oil per day. Given the average oil price of USD 111 or GBP 68.82 per barrel, this amounts to an annual spending of GBP 9.5 BILLION! And this is just the oil alone. Other energy imports included (and still include) natural gas, coal, and uranium.
What does this mean for the economy? Exporting jobs. Instead of spending all this money domestically and creating local jobs, it is sent abroad. It was estimated for the US economy that each $1.00 spent at the gas station generates $0.40 revenue for the national economy… the rest goes ABROAD. Each $1.00 spent on domestic oil generates $3.00 for the national economy, thanks to the multiplier effect. The ratios for the UK might be different, but the essence is the same: money that stays within the economy circulates, creating more jobs and generating more taxes.
This relation is even more evident when oil prices go up. James D. Hamilton, Professor at the University of California, San Diego, noticed that 10 out of 11 recent economic recessions in the US, were preceded by a sharp oil price increase. In developed countries, oil imports are relatively small compared to the national economy: about 2% of GDP. But, the influence of oil price spikes is non-linear and, therefore, much more significant.
It takes time and capital expenditure to adjust to new, higher prices of energy. Think of new energy-efficient buildings or buying smaller, more-efficient (electric) cars. It take a while to adjust.
Short term, more expensive oil and/or energy makes people stop spending money on other things. More comes out of their pocket for the same amount of energy to drive to work, heat the house, etc. Automatically, people spend less on other things such as clothing, entertainment, holidays, gifts, buying lower quality food, etc. This means that any businesses providing these services/items sell less, earn less, and most likely have to fire people. This begins a cycle of an even lower demand for goods and services as these businesses are placing smaller orders, or no orders at all from manufacturers and factories. And the downward spiral continues…. all because oil has no easy substitutes. Prices are driven by international markets and are controlled by a small number of organizations.
Denmark’s example shows that it’s OK to pay high electricity prices, only as long as the energy is produced domestically. The economy won’t be devastated. Danish electricity prices are about twice as high as British prices, yet GDP per capita in Denmark is higher than the UK and the unemployment rate in slightly lower in Denmark.
OK. So it looks like generating energy domestically is an answer. But assuming that all energy resources are domestic (renewable or not) it is best to go for the cheapest energy option, right? Well, let’s see.
Electricity produced and delivered by the Big 6 energy companies in the UK are perceived as the cheaper option to renewables, especially rooftop solar. Again, it’s interesting to see what happens to the money paid in utility bills. In 2012, the Big 6 British energy companies made a combined profit of £3.7 billion. Between 2010 and 2013, energy prices rose by 36%. Out of the 6, only 2 companies are actually British. Again, the supply side of the energy market is controlled by a small number of organizations, allowing for a massive transfer of value from customers to corporations.
Promoting solar DG changes the balance of power. Instead of the Big 6 energy suppliers, the government wants to have 60,000 (distributed) suppliers. This means that the support (in a form of feed-in tariffs, for example) will be distributed among many small and mid-sized companies, families, and NGOs. The money collected from consumers in energy bills to support RE will go straight back into local communities, creating local jobs. BTW, more than half of the solar installation costs are local costs (planning, engineering, construction, maintenance, financing). With solar, there are no fuel supply issues – fuel is free and abundant. This means less money spent on (imported) fuel and more spent or invested locally. This also means energy price spikes will have less influence on the economy. Finally, there is no need to invest in the electricity transmission and distribution network as most energy is consumed on the generation site.
Now, add solar crowdfunding into the mix and we have a perfect solution for energy self-sufficiency and prosperity! With crowdfunding, people invest directly in (shares of) energy generation projects. This means that no matter what happens on the market, they will benefit. In cases of generous support for solar and higher electricity bills, they will receive higher returns on their solar investment. When support is lower and energy prices are lower, they experience the immediate benefit of lower energy bills.
Looks like a win-win to me. Well done, UK — congrats!
About the Author:
Michal Bacia is a solar energy project manager and consultant as well as an author. He recently completed 3 solar sites in the UK (20MWp in total) and published a book about solar energy for anyone who uses electricity (How to choose the best solar system and financing offer for you).
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So to summarise, high energy costs are bad because they make people poorer, except when spent on solar because it makes me richer
Home solar ≠ high energy costs…
Home produced high costs are better than imported, for the country, but still make the consumer poorer in favour of the supplier. With home solar the hard costs [PV panels} are likely to be imported in many countries but soft [installation] will almost certainly be local. However, many consumers will bridle at the investment required to incorporate storage so will prefer a distributed system, at least until the component costs fall to a level where this option is no longer viable. This could take quite a long time,though, because the distributers’ costs are also going to fall, but only if they are not committed to pre-arranged contracts, such as nuclear.
In other words, notwithstanding any such ‘guarantees’, short of coercion, which is already being attempted by some administrations and will be contemplated by others, albeit being disguised as some sort of levy or surcharge, they will be unenforceable against the insolvent customers, i.e. the distributers. What’s the betting that the UK government has known this for some time and acted accordingly?
Arthur,
To summarise: high energy costs make people poorer if you import your energy. High energy costs are not bad if you generate energy locally in a distributed generation model. It happens to be rooftop solar now.
high prices which go abroad are bad, high prices which stay local are good.
in holland the soft winter was less gas usage and economy shrinks 🙁
An excellent and persuasive article which, though not directly challenging the nuclear favoured by the base-load transfixed UK government, includes it in the foreign supplier category as an exporter of jobs.
Despite its extension, the old British nuclear will be gone in 2023. As renewable energy is increasingly competitive, including adding a
storage component, is it reasonable to build new nuclear reactors ?
http://energeia.voila.net/electri2/nucleaire_grande_bretagne.htm [in french]
And Grid parity is achieved for self-consumed photovoltaic electricity.
Look at the price of conventional electricity and the feed-in tariff of photovoltaic electricity for self-consumption.
I live in Sunny California and rooftop solar works great. I’ve had it running for like 7 months now and have generated 2 Megawatt-hours more than I use . . . and I have an electric car (which I don’t drive much though). But even on cloudy and rainy days it still generates some power, just not as much. So solar PV will work fine in the UK. You won’t generate quite as much but your electricity is more expensive and you don’t tend to use as much so it should work just fine.
For a lot of utilities building new transmission lines is difficult to near impossible with NIMBY issues. They’ve figured out that surprisingly, solar can be a bargain when you don’t need to build new lines because you’re deploying energy directly at the source of consumption.
Intelligent utilities are realizing and utilizing this relatively ‘new’ and very adaptable energy source.
There’s some confusion in this article about exports and jobs and things. Basically it is impossible to import without exporting. If Britain imports oil without exporting anything it means that Britian is getting oil for free and oil producers aren’t in the habit of giving away free oil. Britain is going to have to pay for that oil and they are going to have to pay for it by exporting something, whether it be goods or services. So saying that importing oil costs jobs is to say that Britain would have more employment if it exported less. And that’s a difficult argument to make, although it would be interesting to see an attempt made.
Ronald,
Yes, importing oil means you are exporting jobs. Importing anything means you export jobs. And exporting more means you are creating more jobs locally. Look at the case of Germany, look how much they export and how many jobs they create.
In real life it’s a rare case to have imports equal to exports. When you import more than you export there is a trade deficit. To finance the deficit (because no one is giving oil for free) a country has to deplete it’s monetary
reserves (if there are any) or increase debt.
Unless some form of charity is involved, trade always involves an exchange. What is usually exchanged are goods and services, and goods could include shiny commodities such as gold. Or monetary reserves could be exchanged. Or an I.O.U. promising to pay later with interest could be exchanged. An example of this that comes to mind are US Treasury Bonds. So provided all this counts as items of value that are being exchanged, would you agree with me that imports are going to tend to equal exports in terms of dollars or euros or whatever, or would you argue that imports and exports can be divorced from each other and don’t have to be related?
If you include money or I.O.U.s there always has to be equilibrium. Total export = total imports. Always 😉
Glad we agree on that.
But then,there’s the Triffin dilemma: http://en.wikipedia.org/wiki/Triffin_dilemma
As well as its offspring, the issue of exorbitant privilege: http://en.wikipedia.org/wiki/Exorbitant_privilege. ;).
What is DECC actually proposing to do to get the commercial pv sector (factory, shop and office rooftops and car parks) going in the UK? The FIT already holds up to 5MW, which is large for any such projects. The solution involves more than white papers; you have to get down in the weeds of building codes, planning rules and bank loan practices. Why is it so different in Germany?